OREANDA-NEWS. S&P Global Ratings today assigned its 'B' long-term corporate credit rating to Luxembourg-based financing subsidiary ARD Finance S. A. The outlook is stable.

We also assigned our 'CCC+' issue rating to the proposed $1.565 billion (equivalent) payment-in-kind (PIK) toggle notes due 2023, to be issued by ARD Finance. The recovery rating is '6', indicating our expectation of negligible (0%-10%) recovery in the event of a payment default.

The issue and recovery ratings on the proposed PIK toggle notes are based on preliminary information and are subject to the successful issuance of these notes and our satisfactory review of the final documentation.

Ireland-based glass and metal packaging manufacturer Ardagh Packaging Group Ltd. is proposing to refinance its callable PIK notes, which are currently issued by Ardagh Finance Holdings S. A. It is therefore planning to issue PIK toggle notes due 2023 in euro and U. S. dollar tranches with a combined value of $1.565 billion or €1.391 billion (equivalent), via ARD Finance. The ratings on ARD Finance are in line with the corporate credit rating on Ardagh Packaging Group, as we view it as a core financing subsidiary.

We understand that the proceeds of the proposed debt issuance will be used to repay the existing 8.375% €250 million and 8.625% $710 million callable PIK notes due 2019 in full (including accrued interest, call premium, and fees). The proceeds will also be used to upstream a €270 million dividend to shareholders. We expect the new PIK notes will command a lower interest rate, but cash interest will be payable so long as there is sufficient cash available for debt service at the Ardagh Packaging Holdings Ltd. level.

The ratings on Ardagh Packaging Group Ltd. and other related entities are unaffected by this transaction.

The stable outlook on ARD Finance mirrors that on the consolidated Ardagh Packaging Group. The outlook on Ardagh reflects our view that the consolidated group's credit metrics will remain at levels commensurate with the 'B' rating in the near term. The group has a largely debt-funded growth strategy which we do not expect to lead to sustainably reduced leverage, despite strong cash flow generation. We therefore expect leverage to improve slightly in the short term, but credit metrics to remain in the highly leveraged category due to the group's aggressive financial policies.

We could upgrade Ardagh if we expected it to alter its financial policy to focus on reducing leverage while improving its credit measures to levels we consider commensurate with a 'B+' rating. This could occur if Ardagh significantly reduced its debt, for example, through the proposed IPO which we expect in the coming months. At this stage, we anticipate that the consolidated group's credit metrics will remain above 5x. However, we could raise the ratings if we saw evidence of sustainably reduced leverage and a commitment from management to a less aggressive financial policy.

We do not expect to lower the ratings at this stage, but we could do so if Ardagh's liquidity or profitability were to deteriorate significantly, for example, as a result of material underperformance or further aggressive management actions.